Free-Market Poverty Solutions: A Better Poverty Measurement Is A Good Step

Missing in news reports on the recent release of the United Nations 2010 Human Development Report is any mention of a significant addition to the report. For the first time, the HDR includes the Multidimensional Poverty Index, which measures poverty based on components other than income and GDP. The Index rates countries’ poverty levels based on health, education, and living standards, including elements such as nutrition, child mortality, years of schooling, access to water, electricity, and more. The MPI measures a total of 10 indicators and ranks countries accordingly.

To avoid the developing world falling into the same welfare trap that much of the developed world is in, the key to poverty alleviation must be empowering individuals. Any sort of free-market approach to poverty reduction will require placing tools in the hands of the poor, and allowing them to make a better life for themselves. The MPI index recognizes this, and provides a measure of how well countries are doing.

When children receive a quality education, they are more prepared to grow up and obtain a decent job. When water is readily accessible, a family does not have to waste time and resources hauling buckets from the nearest stream, but instead can work on building the family business.

These tools are key to allowing the poor to pull themselves out of poverty, and it is a shame that such an important development in poverty measurement was missed by so many news sources.

Michelle Kaffenberger is a former research assistant at The Heritage Foundation and is currently a graduate student in Economic Development at Vanderbilt University.

I just noted Michelle Kaffenberger's essay "Free-Market Poverty Solutions". She must not have been reading the Human Development Reports for the past twenty years. All of them have used a complex indicator for evaluating poverty and steps toward development. Each year the complex methods used to establish the indicators for poverty, gender development, and environmental progress have improved. I hope she goes back to review the very informative reports from 1990 forward, as well as Mahbub ul Haq's Reflections on Human Development (1995)which provides a rationale for the new paradigm.

End Social Security in phases. (1) keep those who are on it already. (2) Those who are about to go on it will go on but they will be entitled to only what they paid in (plus a moderate interest) if they are above a certain total income amount, and for those below, they will receive the benefits as they are prescribed. (3) for people 5 years or more away, they will start getting their principal they paid into the system back (plus a moderate interest) – to be put into whatever investment vehicle they wish. The same has to happen with public pensions.

Medi/caid/care needs to be shifted to the private sector to be dispersed among all health insurance companies. Together they can manage a minimal and emergency care program for people who have no health insurance.

Welfare shall be shifted to the states 100%. Let the 50 states come up with 50 ideas to combat this problem and let the least costly, most efficient system win.

Once these costs have been eliminated from the federal budget – reduce taxes for everyone. Apply a reasonable flat tax on everyone. Stop taxing businesses. Prohibit the perpetual taxation of personal property and land.

Results: more money on the streets; people wanting to improve their property without fear of higher taxes; people wanting to buy nicer cars without fear of perpetual taxes, businesses having more money to hire; people getting jobs on their own to landscape, build and so on, on people’s property; people buying boats; people getting hired and on and on and on. More over people giving large sums of money to charities that can help out the poor.

Just get rid of these federal programs, let people live their lives the way they see fit, and in a very short order, the need for welfare goes away. We are spending more in welfare than ever before and we now have 1/6th of our population on it. 50% of this nation is on some sort of federal government handout – be that welfare, public employment, not having to pay taxes and so on. This cannot be sustained. We have no more money and going deeper into debt is not an option.

Totally agree, Michelle. And the only way the tools will get into the hands of those who depend on government, is to remove what government provides that the people can do and should do for themselves. People must learn what "personal responsibility" is. For example, as simple as government providing breakfast, lunch and dinner for children who's parents won't. Parents' responsibility, not government obligating the tax payers.

I am very interested in your interpretation of our index as a measure of the prevalence of the tools that people need to lift themselves out of poverty. The constituent 10 indicators in our index are very basic, and other components may well be needed for a person to build a better life – including "aspirations" or "sustained effort". However, a person who lacks several of these basic tools may well be unable to move forward, even if highly motivated. It would be interesting to explore your interpretation further, and to contrast the policy implications of our measure with those arising from traditional income poverty measures. For example, could such a multidimensional index help us better understand and address the persistence of poverty in the US?

When Sabina Alkire and I first constructed our index ("Counting and Multidimensional Poverty Measurement" 2007, forthcoming J. Public Economics) we were motivated by Amartya Sen's capability approach (see, for example, Development as Freedom, 2000) which interprets each dimension as both an end and a means to an end: being healthy is both a desired condition and an important input for achieving other goals. Your interpretation emphasizes the instrumental value of each dimension to an agent who is pursuing a better life. While this interpretation may be a narrowing of our original view of the measure, the key policy channel that it focuses on (empowering the poor) is of central importance to any long-term solution.

I was very interested to see your interpretation of our index as a measure of the prevalence of the tools that people need to lift themselves out of poverty. The constituent 10 indicators in our index are very basic, and other components may well be needed for a person to build a better life – including "aspirations" or "sustained effort". However, a person who lacks several of these basic tools may well be unable to move forward, even if highly motivated. It would be interesting to explore your interpretation further, and to contrast the policy implications of our measure with those arising from traditional income poverty measures. For example, could such a multidimensional index help us better understand and address the persistence of poverty in the US?

When Sabina Alkire and I first constructed our index ("Counting and Multidimensional Poverty Measurement" 2007, forthcoming J. Public Economics) we were motivated by Amartya Sen's capability approach (see, for example, Development as Freedom, 2000) which interprets each dimension as both an end and a means to an end: being healthy is both a desired condition and an important input for achieving other goals. Your interpretation emphasizes the instrumental value of each dimension to an agent who is pursuing a better life. While this interpretation may be a narrowing of our original view of the measure, the key policy channel that it focuses on (empowering the poor) is of central importance to any long-term solution.

Yes, as you say, the indicators in your index are very basic, and as such, I would say they are some of the most basic building blocks for poverty reduction. As you point out, many other elements are certainly needed to improve the lives of the world's poorest. But if people lack these basic building blocks, much like a pyramid of basic needs, they will never be able to achieve higher levels without first meeting the lower levels of needs.

I believe there are brilliant, innovative people filling the developing world, who, because of a lack of education, running water, and the ability to keep their children alive, lack the ability to move to the next rung on the ladder.

I would be interested in your take on aspirations and motivation as factors. I believe those too are very important, but I wonder if there is a hierarchy in which the basic needs must come first, and then the latter can be given attention. Or, on the contrary, if aspiration must first exist in order for education to be beneficial.

Either way, I think your index takes great strides in measuring these aspects of poverty and highlighting their importance.

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